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HIGH FLIER COMES BACK DOWN Border weather, recession put chill on Duty Free sales


For Duty Free International, whose stock's meteoric rise made it the toast of Wall Street last year, the first part of 1992 has been one big hangover.

The Ridgefield, Conn.-based operator of duty-free retail and wholesale outlets, which has the bulk of its operations in Glen Burnie, has seen its stock lose more than half its value since cresting Jan. 15 at $56.25. Duty Free International (DFI) stock closed yesterday at $25, up $1.50 a share.

"This year, everything's going against them," said Paul Bienstock, an analyst with Moran & Associates in Greenwich, Conn.

Duty Free's woes on Wall Street come despite a widely praised merger with UETA Inc., the largest operator of duty-free stores along the Mexican border. Duty Free's absorption of that acquisition, which is viewed as an excellent fit with the company's other businesses, has been going well, according to Chairman David H. Bernstein.

Analysts who follow Duty Free say the stock's plunge has nothing to do with company management.

"The bottom line is, it really isn't their fault," said Mr. Bienstock. "They're being hit by external factors, not internal."

Part of Duty Free's problem, said Beth Cotner of Kemper Financial Services in Chicago, is that it is a growth stock at a time when "everyone hates growth stocks."

But Duty Free's plunge has been steeper than the growth stock sector as a whole because of specific factors affecting a company in an unusual niche market.

The foremost drag on the stock price is a slower-than-expected gain in sales at stores along the Canadian border, where cold, wet weather and a severe Canadian recession have cut into cross-border traffic.

Ms. Cotner said the problem was compounded by the Canadian government's tougher policy against cross-border shopping. The company's duty-free sales are not directly affected by the crackdown, but more frequent car searches at border posts have created long waits that discourage travelers from stopping.

Even with that, the problem is not one of declining or stagnant sales. The Canadian border division's stores posted a more-than-respectable 18 percent gain in comparable-store sales during the fourth quarter, Mr. Bienstock said.

The problem is that Duty Free has become a loser in the expectations game. In running the stock up so high, investors had pinned their hopes on projections of a 20 percent to 25 percent increase on same-store sales. More recently, Ms. Cotner said, such gains have been "probably about 10 or 11 percent."

The weaker-than-expected sales have led some analysts to lower their earnings projections. On Tuesday, Duty Free's stock lost $3.25, or 12 percent of its value at the time, after Morgan Stanley & Co. analyst Kurt Feuerman cut his estimates of the company's profits for fiscal 1993 and 1994.

Significantly, Mr. Feuerman continues to rate Duty Free stock as a "buy," and other analysts who follow the company said its low price makes it a bargain. In an interview in the current issue of Fortune about the decline in growth stocks, Gordon Fines, manager of the IDS New Dimensions Fund, singled out Duty Free as an attractive buy.

Analysts are watching the company closely for signs of a pickup in sales in June. The summer months are critical for the Canadian border business because that's when cross-border traffic is heaviest.

But Mr. Bernstein said it would be wrong to focus too heavily on the northern frontier. With the acquisition of UETA, he said, Duty Free relies on its Canadian business for only 35 percent of its sales, rather than the previous 65 percent.

"A lot of people only understand the Canadian part of the business," he said.

Besides its stores on the Canadian and Mexican borders, DFI operates airport duty-free shops under the Fenton Hill American Ltd. name and serves cruise ships, diplomats and wholesale customers through its Samuel Meisel & Co. division, which is based in Glen Burnie.

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